Cambodia's Stock Exchange Has Second Listing, Two Years After the First

Shares of Grand Twins, a Garment Maker, Fall in Trading Debut

Wall Street Journal | June 16, 2014

A second company listed its shares on Cambodia's fledgling exchange, two years after the first, but the stock's weak performance could hurt growth in an already ailing securities market.

Brokers believed a successful listing for Grand Twins International (Cambodia) PLC, a Taiwanese-owned garment maker that completed a $19.3 million initial public offering last month, would help the stock market to grow. Instead, the shares lost value on their trading debut. 

Grand Twins' poor performance, analysts say, could set back the government's plans to build up its stock market. Many Cambodians have dismissed the effort as a vanity project in an underdeveloped economy that is still grappling with rural poverty and fragile industrialization.

Grand Twins' share price closed at 9,220 Cambodian riel ($2.28) on Monday, down 5% from an opening price of 9,700 riel and 4.4% lower than its IPO price of 9,640 riel. Only 3,101 Grand Twins shares—worth about $7,382 combined—changed hands in the 3½ hours that the market was open, according to the Cambodia Securities Exchange.

The garment maker, which has factories in Cambodia that produce apparel mainly for German sportswear giant Adidas AG ADS.XE -0.04% , sold all 8 million shares— 20% of the company—offered in the IPO. But lackluster demand forced the company to price its deal at $2.41 a share, below the midpoint of an initial range of $1.85 to $3.50 Grand Twins had indicated the stock might sell for.

Analysts and investors say Grand Twins' poor showing stemmed from concerns over Cambodia's garment industry, which is the country's largest export business and formal-sector employer. In the past year, the industry has faced labor unrest and rising wage costs.

"This is an odd time to float a foreign-owned Cambodian garment manufacturer, just six months after labor strikes were suppressed with force," said Douglas Clayton, chief executive of Leopard Capital, a private-equity firm that invests in frontier markets. "This industry doesn't have permanent roots in Cambodia's economy and can move out with little warning."

Grand Twins' IPO underwriter, however, played down the significance of the stock's weak debut. "There's a lack of confidence in the market right now, but this can be turned around," said Stephen Hsu, chief executive of Phnom Penh Securities. "Technical issues, such as a lack of liquidity and gaps in securities regulations, need time to be resolved." 

Executives at the Cambodia Securities Exchange and the Securities and Exchange Commission of Cambodia didn't respond to requests for comment.

Cambodia's stock market has suffered declining investor interest and trading volumes since its first listing in April 2012, the $20 million flotation of the state-owned Phnom Penh Water Supply Authority.

The authority's share price jumped 63% in its first week of trading, but foundered in the following months. So far this year, the stock has gone untraded in 37 sessions and lost 10% of its value. It closed Monday flat at 4,800 riel, well below its IPO price of 6,300 riel.

Since the water supply authority's debut, other IPO candidates have either struggled to meet regulatory requirements or decided to hold off until the market gains depth and liquidity, industry executives say.

Grand Twins, for instance, had considered listing since as early as 2012, but delayed its plans over compliance issues and concerns about market liquidity.

"Liquidity begets liquidity, and the lack of liquidity is going to scare off some investors," said Stephen Higgins, a Phnom Penh-based businessman and former chief executive of ANZ Royal Bank, the Cambodian arm of Australia & New Zealand Banking Group Ltd. "It's a real chicken-and-egg situation, and until they can get quite a few more stocks listed, it is going to be hard to get that liquidity."

Some state-owned companies are preparing potential listings, but it is another Taiwanese-owned garment maker, TY Fashion Co., that appears most likely to become the third stock to list on the Cambodian exchange, according to Mr. Hsu of Phnom Penh Securities. That IPO could raise up to $20 million and be launched as early as September, he said.